Sometimes you should just know when to quit. Not that clients always go along with it, or that you have a choice, but some cases are just losers. The Daniel Group v. Service Performance Group, Inc. is one of those.

First up, that the plaintiff owns the mark by virtue of its federal registration. That is, of course, just flatly wrong under U.S. law. The registration claims a first use date of January 20, 2005 and the registrant backpedaled to a 2002 date. No matter; defendant had affidavits from 51 individuals proving its use from at least 1997 to the present so it was senior user.

Second up, that change of corporate form caused the trademark rights to evaporate. That was also a no-go. As is typical of small business, there were a number of changes in entity form. The mark was first used by a husband and wife team, the Guyles. They incorporated their business in Illinois. The couple moved to North Carolina and the Illinois corporation was administratively dissolved in 2005. The couple then operated “as a d/b/a” (a proprietorship), continuing to use the mark, and incorporated in North Carolina. After getting the cease and desist letter from the plaintiff in late 2009, they assigned any trademark rights that the Illinois company might have had in the trademark to the North Carolina corporation.

Under Illinois law, a corporation has five years to wind up its affairs. The Guyles got the assignment in under the wire, so it was effective. Even if they hadn’t, also under Illinois law any assets would have passed to the shareholders, the Guyles. In either case, they owned the trademark and could assign it to the North Carolina corporation.

Third up, abandonment. The defendant produced affidavits showing continuity of the business and continuous use of the same mark during the entire period from 1995 to 2010. Dissolution of the Illinois business entity was not the same as cessation of use of the mark. Citing Callman on Unfair Competition, Trademarks and Monopolies § 20:19, citing a TTAB case, Brewski Beer Co. v Brewski Bros. Inc., 47 U.S.P.Q. (BNA) 1281 (TTAB 1998), there was no abandonment:

The relevant authority holds that defendant’s change of corporate status–from a proprietorship, to an Illinois corporation, to a proprietorship, to a North Carolina corporation–does not affect defendant’s validly held and continuously used trademark.

Since confusion was conceded, the only issue was priority. Defendant’s motion for summary judgment on federal and state law infringement claims granted.

This looks to me like a case the plaintiff should have been smart enough to get out of before it got this far. It undoubtedly obtained a registration for its mark without having any knowledge of the defendant’s senior use, then had that horrible “uh-oh” moment when, after accusing another of infringement, it realized that the accused is actually the senior user. Assuming you don’t want to change the mark (which might actually be the best move), smart money then is to either just shut up and hope that they don’t sue you for infringement until you have a good equitable argument or negotiate a co-existence agreement. Instead now, the defendant has a judicial determination that it is the senior user AND a pending counterclaim for trademark infringement against the plaintiff. Perhaps no harm – it appears The Daniel Group has modified its web pages to eliminate use of the mark – so maybe it was all a question of buying time. But I’m curious to know why it got this far. It sure is an expensive way to buy time.

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Ms. Chestek is admitted to practice in Connecticut, the District of Columbia, Massachusetts, New York and North Carolina and is Board Certified by the North Carolina State Bar's Board of Legal Specialization in Trademark Law.

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